Each week The Rendon Group Alert Team will focus on a different continent and a different issue affecting that continent. The Snapshot Report is intended to provide a summary of events on a given issue over the past week as well as a sample of experts who cover that issue. The Rendon Group does not endorse the positions on issues that the listed experts hold nor does The Rendon Group hold a position on any of the topics chosen for the Snapshot Reports. As always, we remain available to answer any questions you may have and to provide additional information upon request. For more information regarding The Rendon Group’s products and services, please contact us at Alert@Rendon.com or +1-202-745-4900.

Mexico’s Energy Sector Reform

This week’s snapshot concerns energy reform in Mexico. On 12DEC, the country’s Congress passed a bill that will end state-owned oil company Petróleos Mexicanos’ (Pemex) monopoly on the country’s energy sector. The reform has been heralded as the biggest economic change in Mexico since the 1994 North American Free Trade Agreement, and is expected to have a major impact on global oil markets. The bill has also triggered opposition amongst leftist groups, resulting in protests in the capitol, Mexico City.

News summary of events related to the during the week of 09DEC-16DEC

On 07DEC, a Senate committee proposed legislation to open the country’s oil sector to greater private investment and end Petroleos Mexicanos’ (PEMEX) monopoly. (AP)

Sample of Third Party Validators regarding Mexico’s energy sector reform

Ed Morse, Head of commodities research at Citigroup Inc. New York, USA

“With reform there will undoubtedly be a spurt of production growth as Mexico is a very rich hydrocarbon area both onshore and offshore…Realistically, it could double the amount of oil that Mexico produces.” Mexico Passes Oil Bill Seen Luring $20 Billion a Year, Bloomberg, 13DEC13

Pedro Burelli, Economic and Political Consultant, B+V Consulting

“”This seismic shift in Mexico should have a momentous impact on global oil markets…the energy balance in the Western Hemisphere will continue to be reshaped to the detriment of Middle Eastern producers.” – Pemex’s Oil Monopoly Nears an End, Wall Street Journal, 11DEC13

Tim Samples, Business professor, University of Georgia, USA

“It’s pretty comprehensive, an opening across the board, not just oil but also natural gas and the electricity sector (…) This has the potential to reshape Mexico as much as NAFTA,” the 1994 free trade agreement with the U.S. and Canada. – Mexico’s Congress passes energy reform bill, Los Angeles Times, 12DEC2013

Benito Berber, Strategist, Nomura Holdings

““The most likely scenario for the energy reform is that it includes concessions and production-sharing agreements because the [political party] PAN will only approve a truly pro-market bill.” – Big Oil eyes Mexico as lawmakers look to end Pemex monopoly, Financial Post, 04DEC13

“In order to gain support for this most important project, Peña Nieto has to launch a concentrated effort to educate Mexican citizens on the need to allow private investment in the energy sector. To date, the government has acted defensively, rejecting the call for greater information and debate. That has to change if citizens are to understand why the President seeks to reform the energy sector.” – Mexico’s Most Critical Challenge: Energy Reform, Brookings, 20NOV13

Sample of open source research by TRG analysts related to Mexico’s energy sector reform:

The Senate proposal would allow the government to grant contracts for exploration and extraction of oil and gas to multinational giants such as Exxon or Chevron, something that is currently prohibited under Mexico’s constitution.

It also says that contracts could be made directly with the state and don’t have to be issued by the state-run oil company, Petroleos Mexicanos, or Pemex, which currently has a monopoly on Mexican oil.

MEXICO CITY (Reuters) – Mexican Senate committees on Sunday debated an energy bill that would open up the world’s 10th-biggest oil producer to private investment by allowing new types of contracts, marking the industry’s most dramatic overhaul in 75 years.

The bill, announced by centrist ruling party and opposition conservative lawmakers on Saturday, would let private firms partner with ailing state oil firm Pemex <PEMX.UL> via profit-sharing, risk-sharing and service contracts as well as licenses in a bid to boost sagging production.

The reform, which would keep ownership of crude in state hands, is at the center of an economic reform drive that President Enrique Pena Nieto hopes will boost lagging growth in Latin America’s No. 2 economy.

It is much bolder than a draft proposed by Pena Nieto’s Institutional Revolutionary Party (PRI) in August, which would have offered profit-sharing contracts and was considered too tame for attracting private firms.

MEXICO CITY (Reuters) – Three Mexican Senate committees on Monday gave general approval to an energy bill that would open up the world’s 10th-biggest oil producer to private investment and mark the industry’s most dramatic overhaul in 75 years.

The hotly-debated bill, which would allow private firms to partner with ailing state oil giant Pemex through licenses and profit and production sharing contracts, will now need final approval from the committees, which are set to start exhaustively debating the details later on Monday.

Around 20 lawmakers took over the chamber’s podium, unfurling a banner with the words “traitors” in big letters after wrapping chains around the handles of a door and piling up chairs.

“We cannot allow a handful of people to take and give away the nation’s property,” deputy Maria Luisa Alcalde of the Citizen Movement Party said from the podium, joined by members of the Democratic Revolution Party (PRD) and the Workers Party.

The legislature voted 354-134 in favor of the bill at a rowdy session that was held in an auditorium after two-dozen leftist opposition lawmakers locked themselves inside the chamber of deputies, hours after the Senate approved it.

The legislation is the centerpiece of President Enrique Pena Nieto’s reform agenda, which has led to overhauls of education, tax collection and telecommunications to boost Latin America’s second biggest economy.

But opening the oil and gas industry to private investment is a highly sensitive issue in Mexico, where many look back with pride at the 1938 expulsion of foreign companies.

Locked out of the lower chamber, deputies crammed in an auditorium where they had to vote by voice one by one, with supporters punctuating their ‘yes’ votes with “in favor of Mexico” while leftist opponents branded the majority “traitors.”